A Step Forward for VOD

In a move that spreads on-demand movies to another corner of the Web, CinemaNow (www.cinemanow.com) announced it has partnered with Hollywood.com ( www.hollywood.com), a Web site that provides news, information and ticketing information for movies. Under the agreement, CinemaNow will make pay-per-view movies available via a co-branded section on the Hollywood.com Web site. The movies will retail for $2.99 and the service should be available by the end of June.

CinemaNow is a pioneering Web site in the delivery of movies on-demand over broadband networks, and is majority owned by the independent-minded Lions Gate Studios. CinemaNow is in many ways an experiment to test the viability of VOD over IP networks using content provided by smaller Hollywood studios, including Lions Gate, Trimark Pictures, Avalanche, Allied Artists, Tai Seng and Salvation film libraries.

Curt Marvis, CEO of CinemaNow, noted in an interview that many of his investors, such as Blockbuster, have laid down what is to them a small amount of cash, in order to have access to the data regarding CinemaNow's development.

A debate is beginning to brew regarding which form of VOD delivery will be more profitable - DSL or Digital Cable delivery. A recent Forrester report, Movie Distribution's New Era, states, however, that cable-based deployment of VOD is most likely because security and quality issues are stalling Internet-based VOD.

Nonetheless, CinemaNow's traffic is growing and is consistently listed as one of the top 15 trafficked streaming content sites by DFC Intelligence - even without huge name "Titanic-type" movies.

"Our traffic grows with essentially no marketing," adds Marvis.

Verizon has announced plans to look into VOD over its DSL lines. The Enron/Blockbuster deal stood to create a prominently placed service for movie delivery over DSL, but it fell through because the studios basically refused to release any content for the deal.

It is debatable just how anxious studios are to tamper with their release window and profit structure, but they also want to move fast enough so they beat the technological advance that makes movie trading highly feasible — be it widespread broadband or better compression.

"Probably the highest window that you'll see movies legitimately on the Internet in is the PPV window," says Marvis.

Today the distribution channels are the theater first, followed by home video sales and rentals at the six-month mark, pay-per-view and VOD rights at the nine-month mark, subscription movie channel rights at 12 months, and basic cable and network rights at the 18-month mark.

The Forrester report also notes that as VOD becomes ubiquitous, the VOD window will likely erode the video rental market and its sell-through revenues, which provides a bit of insight into why Blockbuster was so interested in partnering with Enron in the first place. Forrester notes that the video rental market today accounts for 65 percent of all movie profits.

There is the possibility that a few middlemen can be cut out with digital distribution. CinemaNow, for example, is majority-owned by a studio.

Unless the movies are being delivered to a PC, DSL VOD proponents face the challenge of distributing another set-top box. According to Joe Boyle, VP corporate communications at inDemand - the Pay-Per-View service providers for several cable systems formed as a joint venture between Time Warner, AT&T, Comcast and Cox - digital set-top boxes capable of VOD are already deployed in many cases. Boyle added that many customers already are holding a remote with a flip-back slide that covers the VCR functions for VOD.

Forrester Research puts the number of homes already equipped for VOD at just below 500,000.

One of the hold-ups for cable-based VOD, according to Boyle, is that most cable systems are still MSOs (Multiple System Operators), meaning that they run both analog and digital systems. Only customers that have digital cable and are on a node that has been upgraded could potentially receive VOD today.

"The buy rates are phenomenal for VOD, but it's hard to promote because it's not universally available," says Boyle.

The concept of VOD is not really all that new: Time Warner tried out VOD unsuccessfully back in the 80s. Perhaps the upcoming HBO VOD service will prove more successful.

According to an HBO spokesman, HBO's subscription VOD service should be available by the end of the summer on a few cable systems in major markets. Customers will have to order the service from their cable provider and pay a monthly charge, but then they will be able to watch any HBO show on-demand.

It will be interesting to see if consumers will pay an additional monthly fee for one additional on-demand channel when TIVO systems are retailing for around $400. With TIVO, every single TV channel can be made into a simulated on-demand channel.